How is the impairment of a lease accounted for?

An impairment is a permanent reduction in the carrying value of an asset below its fair value (US GAAP) or recoverable amount (IFRS), which occurs when it is probable that the lessor will be unable to collect all amounts due in accordance with the contractual terms of the lease agreement.  The nonrecurring charge taken to reduce an asset’s carrying value to its fair value (US GAAP) or recoverable amount (IFRS) is an impairment loss, it equaling the amount by which the asset's carrying value exceeds its expected recovery value.

Provisions for Loan and Lease Losses* 1984-2014

Source:

* All FDIC-Insured Institutions Source: Cleveland Fed

Under both US GAAP and IFRS, a leased asset’s impairment loss is credited by the lessor directly to the asset; if a revaluation account is used under IFRS, it is recognized in other comprehensive income (OCI).  Under US GAAP, any recovery of an impairment is recognized as a gain in earnings.  Under IFRS, if impairment is recovered, the impairment is reversed in the asset’s revaluation account, but not in excess of the original carrying amount net of depreciation – if the impairment loss exceeds the revaluation surplus, the remaining loss is recognized as expense in the income statement.

Lessor Increase in Allowance for Loan and Lease Losses (ALLL)
Date	Provision for Loan and Lease Losses		xxxx
		Allowance for Loan and Lease Losses		xxxx
	To record an increase in uncollectible loans and leases